Financial Planning & Wealth Management

1. Financial Planning & Wealth Management By CA Rajkumar S Adukia 09820061049/09323061049 rajkumarradukia@caaa.in Financial Planning and Wealth Management

2. Agenda Financial Planning and Wealth Management Explaining the essence of Financial Planning & Wealth Management Exploring Investment Planning/Wealth Management Knowing about Asset Allocation Do’s and Don’ts Mantras in Financial Planning and Wealth Management Investor Risk Awareness

3. INDIAN FINANCIAL SYSTEM Financial Intermediaries Regulators Financial Instruments Financial Markets Credit Market Capital Market Money Market Forex Market Primary Market Capital Market Instrument Money Market Instrument Secondary Market Financial Planning and Wealth Management

4. What is Financial Planning? Financial Planning and Wealth Management

5. Steps in Financial Planning Financial Planning and Wealth Management

6. Categorizing Individual Investors Financial Planning and Wealth Management • Salary Earners – Government/Private • Self Employed/Entrepreneurs/Traders • Professionals • Others – Students, Housewives, Retired Individuals They can further be categorized into • Beginners • Middle Level • Final Level

7. Salary Earners Financial Planning and Wealth Management Every month Salary is wealth accumulation Rule of Thumb : Always hold 3 months salary in savings (job change/delay in payout) Beginners: Be more aggressive (no or less liabilities, consistent income level) Mid career people – Be Moderate ( more liabilities, commitments) HNIs – A balance of Moderation and Aggressiveness ( More Money)

8. Self Employed/ Entrepreneurs/Traders Financial Planning and Wealth Management Investment – Own Funds/Borrowed Funds Average of Income Earned every month Insurance cover for business and personal needs Surplus funds on savings Funds for further investment in business Loan repayment

9. Professionals Financial Planning and Wealth Management • Average earnings every month • Loans for setting up Professional Practice and its repayment • Monthly commitments • Surplus savings • Fund for further investment • Investment in Real Estate • Sole proprietorship/ Firm/Company

10. Others – Students, Housewives, Retired Individuals etc Financial Planning and Wealth Management Housewives and Retired individuals should choose investments that are safe, followed by returns and liquidity. Tax saving aspect of the investment is less important Students should invest in very safe securities that can also yield them high returns, liquidity and tax saving aspects can be given lesser importance

11. A way to plan Financial Planning and Wealth Management • A Plan is a Must! • Where Am I Now? • Net Worth (Assets – Liabilities) • Personal Budget • Where Do I Want to Go? • Goals and Objectives • Major Purchase, Children’s Education, Retirement, Marriage, Vacation • How Do I Get There? • Recommendations and Implementation • The Plan!

12. Categorizing Financial Planning Financial Planning and Wealth Management Tax Planning Insurance Planning Retirement Planning Estate Planning Investment Planning/Wealth Management

13. Tax Planning Financial Planning and Wealth Management

14. Financial Planning and Wealth Management

15. Tax Saving Sections Financial Planning and Wealth Management

16. Tax Saving Sections Financial Planning and Wealth Management

17. Invest in Equity Scheme and Save Tax Financial Planning and Wealth Management 80CCG: Investment under any Equity Saving Scheme Eligibility: Individual Acquires listed equity shares/ units in accordance with the central government notified Scheme i.e Rajiv Gandhi Equity Savings Scheme, maximum deduction: 50% of amount invested or Rs 25000/- whichever is less.

18. Insurance and Health Planning Financial Planning and Wealth Management • Our risks include • Our Lives • Medical Contingencies • Assets • Insurance Planning the 1st Step • Opting for adequate life insurance cover is essential • Insurance requirement to be reviewed every 2 years • Insurance secures our • Future • Finances • Loved Ones

19. Types of Life Insurance Policy Financial Planning and Wealth Management Term Insurance Whole Life Policy Endowment Policy Money Back Policies Annuities and Pension Unit Linked Insurance Plan Postal Life Insurance Riders: Comprehensive Coverage

20. Postal Life Insurance (PLI) Financial Planning and Wealth Management • Covers employees of • Central and State Governments, • Central and State Public Sector Undertakings, • Universities, • Government aided Educational institutions, • Nationalized Banks, • Local bodies etc. • Officers and staff of the Defence services and Para-Military forces   • Upper limit Rs 10 lacs all schemes put together • Offers Single as well as Group Insurance • The policy can be assigned to Financial Institutions for taking loan. • Issue of Duplicate Policy Bond in case of the original Policy Bond is lost • Intra conversion of policies allowed

21. Postal Life Insurance (PLI) Financial Planning and Wealth Management • PLI offers 7 (Seven) types of plans: • Whole Life Assurance  (SURAKSHA) • Convertible Whole Life Assurance (SUVIDHA) • Endowment Assurance  (SANTOSH) • Anticipated Endowment Assurance  (SUMANGAL) • Joint Life Assurance  (YUGAL SURAKSHA) • Scheme for Physically handicapped persons • Children Policy

22. Rural Postal Life Insurance (RPLI) Financial Planning and Wealth Management • RPLI offers following types of plans: • Whole Life Assurance ( GRAMA SURAKSHA) • Convertible Whole Life Assurance (GRAMA SUVIDHA) • Endowment Assurance ( GRAMA SANTOSH) • Anticipated Endowment Assurance  (GRAMA SUMANGAL) • GRAM PRIYA • Scheme for Physically handicapped persons • Min Sum Assured Rs.10,000 & Max Sum Assured Rs.3,00,000/- • Max age limit of entry is 55 years in case of Whole Life and Endowment Assurance while it is 45 years otherwise. • All the schemes have compulsory medical examination. • For the non-medical policies, the maximum limit of Sum Assured is Rs.25,000/-, and maximum age is 35 years. • Non-standard age proof for Rural PLI policies, the maximum age limit is 45 years

23. Points on PLI Financial Planning and Wealth Management Salaried professionals in Private Sector are not eligible but they can have RPLI policies subject to fulfilling other conditions. If one spouse is working in a Government Organization but the other is not, there is 'Yugal Suraksha' scheme under which both can jointly get a policy  If one quits the Government service, one can continue by making payment at any one of the 1, 55,000 post offices throughout the country If the premia are not paid for 6 months in case policy is in currency for 3 years (or) 12 months in case policy is more than 3 years old, then the policy becomes void. No Home Loan available  Revival shall not be allowed on more than two occasions during the entire term of the policy. One forgets to pay one’s premium in a month, then one can pay the premium in the subsequent month, by paying a minimum fine of Re. 1/- per hundred of sum assured. Surrender value depends on the surrender factor and type and term of policy

24. Who can become Insurance Brokers? Financial Planning and Wealth Management • Anyone Professional opportunity for Chartered Accountants • CAs can also take up this role given their understanding of the benefits of the insurance and client base and interaction • Chartered Accountants advice is much valued upon

25. Retirement Planning Financial Planning and Wealth Management • Allocation of finances for Retirement • No Government sponsored retirement plan • Nuclear Families • Unforeseen Medical expenses • Estate Planning • The Flexibility to Deal with Changes • Systematic investment every month is a way to a tension free healthy retirement.

26. Retirement Planning - Steps Financial Planning and Wealth Management Decide of age for retirement Annual income need for retirement years Current market value of all the savings and investments Determine a realistic annualized rate of return Consider company pension plan if any Now compute the value required on retirement

27. Retirement Investment Options Financial Planning and Wealth Management Public Provident Fund (PPF) National Savings Certificate (NSC) Employees Provident Fund (EPF) Mutual Fund Products Insurance Products New Pension Schemes Reverse Mortgage

28. Traditional Retirement Insurance Schemes Financial Planning and Wealth Management • Bajaj Allianz – Suvarna Vishranti • ING Vysya – ING New Best Years • ICICI Pru – ICICI Pru Forever Life • HDFC Life – Classic Pension Plan • Metlife – Met Pension-Par • Kotak Life – Retirement Income Plan • SBI Life – Lifelong Pension Plus (NP)

29. Traditional Retirement Insurance Scheme Financial Planning and Wealth Management Tata AIG – Life Nirvana Aviva – Pension Builder Sahara Life – Sahara Amar Jeevan BhartiAxa – Wonder Years Retirement Plan Future Generali – Pension Plus AegonReligare – Pension Plan IDBI Federal – Retiresurance Guaranteed (NP) Birla Sunlife – Secure 58 Plan (NP)

30. Estate Planning Financial Planning and Wealth Management • Accumulating and Disposing of an estate to maximize the goals of the estate owner. • Distribute wealth to a certain beneficiary or beneficiaries to whomever the owner wishes. • Important to take the help of an attorney experienced in estate law

31. Estate Planning Objectives Financial Planning and Wealth Management • Asset transfer to beneficiaries • Tax- effective transfer • Planning in case of disabilities • Time of distribution can be pre-decided • Business succession • Selection of Trustee or guardian or the executor

32. Steps and Tools in Estate Planning Financial Planning and Wealth Management • Steps • Listing of assets and liabilities • Open family discussion on selecting the guardian • Update the current beneficiaries like life insurance • Decide upon the distribution of the assets on death • Funeral arrangements with spouse and family • Assistance of an estate planning authority • Tools • Life Insurance • Will • Trust

33. Documentation Financial Planning and Wealth Management • Power of Attorney • Wills • Title Deed • Trust Deed • Partition Deed • Gift Deed • Insurance Papers

34. Wealth Management Financial Planning and Wealth Management Elements of Wealth Management Asset Allocation

35. Investment and Wealth Planning Financial Planning and Wealth Management • It is all about weaving an investment net with • Equity • Fixed Income Deposits • Post Office Schemes • Gold • Commodities • Currency

36. Investment and Wealth Planning Financial Planning and Wealth Management • Derivatives • Mutual Funds • Exchange Traded Funds • Real Estate • Alternative Investment • Investment Options for Non-Resident Indians

37. The Right Asset Mix Financial Planning and Wealth Management • Asset mix is the balance between stocks, bonds and cash, returns and risk level monitor • Stocks - greater growth & greater volatility • Gold – the bumper crop • Mutual Funds – the fund equalizer • EFTs – the norm • Real Estate – the cash cow

38. Life Stage and Right Asset Mix Life Stage 1 Life Stage 2 • Life Stage 3 Cash 0% Cash 5% Cash 10% Bonds 35% Bonds 65% Bonds 45% Stocks 65% Stocks 50% Stocks 25% Financial Planning and Wealth Management

39. Portfolio Management – A Balance Financial Planning and Wealth Management • Containing all the asset classes in well balanced proportion. • Example of well balanced portfolio. – Equity 30% – Debt 30% – Gold 10% – Real Estate 30% • Find the best that suits you!

40. Asset Allocation - Equity Financial Planning and Wealth Management • Comprises of – Shares & Stocks • Variety – Blue Chip, Growth Stocks, Income Stocks, Cyclical Stocks, Defensive Stocks, Speculative stocks • Advantage – Greater returns, diversification, liquidity, information, tax benefits, appreciation, dividends, pledge, voting • Regulator – BSE, NSE, • Markets – Primary & Secondary, Online Trading • Investors – Retail Institutional Investors, Non Institutional Investors, Qualified Institutional Buyers

41. Asset Allocation – Gold Financial Planning and Wealth Management • India is the largest market for gold in the world • Total consumer demand in India stood at US$ 44920 million for 12 months ended Q1 2012 • International Currency • Why invest in Gold?? • Diversification • Low Liquidity Risk • Hedge against Inflation • Good Returns • Low Credit Risk • Safe Haven Investment

42. Asset Allocation – Gold Financial Planning and Wealth Management • Avenues of Investment • Jewellery • Gold Coins • Gold Bars • ETF • Global Mutual Fund • Gold Fund of Fund • Gold Derivatives (Futures) through MCX • E-Gold • Gold Accumulation Schemes/Savings for Gold Scheme • Gold Deposit Scheme

43. Asset Allocation – Fixed Income Financial Planning and Wealth Management • Types – Government Securities, Public Sector Bonds, Private Sector Bonds • Varieties – Government Guaranteed Bonds, Zero Coupon Bonds, Treasury Bills, STRIPS, PSU Bonds, Commercial Paper, Debentures, Floating Rate Bonds, Inter Corporate Deposits, Certificate of Deposits • Status of Holding – Investors are Creditors to the Issuer • Market – Debt Market (WDM, RDM, G-secs) • Types of Trade – Outright Sale or Purchase, Repo Trade • Regulator - RBI

44. Money Market Instruments Financial Planning and Wealth Management Certificate of Deposit (CD) Commercial Paper (C.P) Inter Bank Participation Certificates (IBPC) Inter Bank term Money Treasury Bills Bill Rediscounting Call/Notice/Term Money

45. Commercial Papers Financial Planning and Wealth Management Are short term borrowings by Corporates, FIs, Primary Dealers (PDs) from Money Market CP when issued in physical form are negotiable by endorsement and delivery Issued subject to min 5 lacs and in multiples of 5 lacs thereafter Maturity 15 days to 1 year Unsecured and backed by the credit of the issuing company Any private or public sector companies willing to raise money through the CP market has to meet the following requirements

46. Private Banking Financial Planning and Wealth Management • Classification of bank deposits • Savings Bank Account • Current Deposit Account • Fixed Deposit Account • Recurring Deposit Account • Fixed Deposit interest rates in India vary anywhere between 7.00 % to 9.25% • Monitoring maturity dates • Policy Changes by RBI

47. Asset Allocation – Post Office Schemes Financial Planning and Wealth Management • Post Office Savings Account • Post Office Recurring Deposit Account • Post Office Monthly Income Accounts • National Savings Certificate (VIII Issue) • Kisan Vikas Patra • Senior Citizen Saving Scheme (SCSS) • Public Provident Fund Scheme • Deposit Scheme for Retiring Government Employees • Deposit Scheme for Retiring Employees of Public Sector Companies

48. PPF – Public Provident Fund Financial Planning and Wealth Management • Minimum investment per financial year in PPF is Rs 500/- and w.e.f 1.12.2011 the maximum limit has been raised to Rs 1 lakh • Not more than one PPF account in one’s name • PPF a/c can be extended for any number of times after the expiry of its tenure of 15 years.   • The extensions will be for the block of 5 years. • Interest rate in PPF announced every year in April. • Nomination facility is available in PPF • PPF has 15 years lock-in but you can get a loan and also opt for premature withdrawal after a certain period of time.

49. PPF – Public Provident Fund Financial Planning and Wealth Management • No HUF or association of person is allowed to open PPF a/c. • Non Resident Indian (NRI) cannot open a new Public provident fund account in India. • The PPF scheme is operated through Post Office and Nationalized banks. • Pvt Banks like ICICI bank offers this account. • Deposits are exempt from wealth tax. • The balance amount in PPF account is not subject to attachment under any order or decree of court in respect of any debt or liability,

50. Asset Allocation - Commodities Financial Planning and Wealth Management Allow a portfolio to improve overall return at the same level of risk Who should invest? Any investor who wants to take advantage of price movements A kicker (side card) in the portfolio